Credit cards can be a beneficial tool when used correctly. They can also earn you rewards or other perks. While credit cards have many positives, including convenience, they also come with risks. Here are 7 credit card mistakes to avoid.
1 Being late with your credit card payment
Missing payments or being late with credit card payments can negatively affect your credit score. To be specific, payment history makes up 35% of your credit score. This makes it the single most important factor in your score. Paying your credit card bills and other bills on time every month can help improve your score.
2 Carrying high credit card balances
Similar to how late payments affect your credit score, maxing out your credit cards can also hurt your credit score. Your credit utilization is the ratio of your total credit to your total debt. For example. If you have a credit card with a $5000 limit and are carrying a $2500 balance, your credit utilization rate is 50%. A high credit utilization ratio, such as maxing out your credit cards, can often lower your credit score. Credit utilization accounts for 30% of your credit score. Keeping your credit card balances low can help you improve your score.
In addition to paying down your debt, you can improve your credit card utilization by opening up another credit card. The increase in credit limit will help you improve your ratio. If you take advantage of a low-interest rate credit, such as Benchmark Federal Credit Union’s VISA Balance Transfer Card, you can benefit from a lower rate as well. Benchmark is currently providing 0% APR* on purchase and balance transfers for up to 12 months from card opening for qualified borrowers. The key when transferring your balance is paying down the balances and not adding more debt by continuing to charge up your cards.
3 Only making the minimum payments
Making only minimum payments on your credit cards is an important credit card mistake to avoid. This is especially true if you have a high-rate credit card. It’s always smart to focus on paying down your balances. In mid-October, CBC News reported that the average credit card rate in the U.S. is now more than 22%, the highest since 2019. Here is an example of how much making only the minimum payments can cost you.
|CC Balance Interest Rate Monthly Payment Months to Pay Off Total Interest|
|$2,500 20% $50 60 $1,474.08|
The Benchmark Balance Transfer VISA Card we mentioned above is a great tool for transferring this balance and paying it down as much as possible during the 0% APR* intro rate. You may also be able to find a low-rate personal loan to help you consolidate the balances of high-rate credit cards into one fixed loan payment each month.
4 Using credit cards to fund a lifestyle you can’t afford
We all need to live within our means and our budget. Living beyond your means by charging up high balances on credit cards can equal trouble.
5 Taking out cash advances on your credit card
Taking a cash advance on your credit card may cost you more than you think. First, credit card companies charge fees for cash advances. Second, a cash advance may have a higher interest rate than a purchase. You should always check with your credit card company. Third, the interest on the cash advance begins accruing from the transaction date rather than the end of the grace period. If you are just using your credit card to access cash for convenience, use your debit card instead.
If you are in need of cash, a fixed-rate personal loan or a low-rate personal line of credit is probably a better solution. If you have equity built in your home, a low-rate home equity loan or HELOC are other possible solutions for getting the cash you need.
6 Applying for too many credit cards
We’ve all been there. You’re in line at a retailer and they lure you into applying for a new credit card by offering you a discount on your purchase. Problem is, applying for too many credit cards can impact your credit score. Each time you apply for a new card, it results in a “hard” credit check. Only open a credit card if you really need or want it. If you are applying for a credit card, look for a card with a low rate and no annual fee. Tap to learn more about Benchmark FCU’s VISA credit card and VISA balance transfer credit card.
7 Not monitoring your credit card statements
The last of our credit card mistakes to avoid is not checking your statement for errors. Regularly checking your credit card transactions online, as well as checking your monthly statement, not only helps you to catch errors, but also to monitor for fraud.
*APR = Annual Percentage Rate. Rate subject to change & based on an individual’s credit history. 0% Intro Rate is valid for purchases & balance transfers from other institutions for 365 days from card opening. The 0% rate will be in effect for up to 12 months from card opening & after 12 months the rate on all unpaid balances will convert to the rate member qualified for at card opening. The 0% APR promotional rate is only valid on new VISA® Platinum Cards & subject to expire without prior notice.